Interest u/s 234A, 234B and 234C

Income tax act is the charging statute of income tax in India.

The Act inter alia requires that Income tax returns be filed in time, advance tax be paid correctly and within
the time prescribed under the act. In case the assessee fails to comply with the provisions of the Act, interest
shall be chargeable under Sections 234A, 234B and 234C.

This article aims to give clarity on the computation of Interest under the above mentioned sections.

Interest under section 234A Default in furnishing the return of Income:

If the assessee has not filed his return of income within the time limit prescribed, he shall pay simple interest
@ 1% for every month or part of a month. It is calculated from the due date to date of furnishing the return.

Example:

A company files its return on 10
th
December. Due date under the Act is 30
th
September. Suppose the tax
payable by the company is Rs.100000. Interest will be calculated as follows:

Tax = 100000
Delay = 3 months ie Oct, Nov, Dec.
Interest = 100000*3%= Rs.3000

Interest under section 234B- Default in payment of Advance Tax:

If an assessee has to pay advance tax and he has not paid such tax or if the advance tax paid by him is less
than 90% of the assessed tax, he shall pay simple interest @ 1% every month or part of a month.

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1 of 5 05-Jul-14 9:45 AM
It is calculated from April 1
st
of the next financial year to date of determination of total income under Section
143(1). But, if regular assessment u/s. 143(3) is completed, then interest is chargeable up to the date of
regular assessment.

Interest shall be calculated on the amount equal to the assessed tax in case no advance tax is paid, or on the
amount by which the advance tax paid falls short of the assessed tax.

Example:

Mr. A has a tax liability of Rs.300000. TDS = Rs.50000

Advance tax payment details are as follows:

15
th
Sept 2011 Rs.30000
15
th
Dec 2011Rs.50000
15
th
Mar 2012 Rs.55000
Total Rs.135000

Interest u/s 234B is calculated as follows:

Tax on income Rs.300000
Less: TDS Rs.50000

Assessed tax Rs.250000

90% of assessed tax = 250000*90% = 225000
But Advance tax paid = Rs.135000
Hence 234B is attracted.

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Shortfall = 250000-135000= Rs.115000
(Shortfall means difference between assessed tax and advance tax paid).

Interest under section 234 B = 115000*1%*4 months (Apr-July) = Rs.4600

Interest under section 234C Deferment of Advance tax

Before we talk about Section 234C, we need to talk about the due dates of payment of advance tax.

Non-corporate assessee:

Due date of Instalment Amount payable
On or before the 15th September 30% of such advance tax.
On or before the 15th December 60% of total advance tax.
On or before the 15th March 100% of total advance tax

Corporate assessee:

Due date of Instalment Amount payable
On or before 15
th
June
15% of such advance tax
On or before the 15th September 45% of total advance tax
On or before the 15th December 75% of total advance tax
On or before the 15th March 100% of total advance tax

Section 234C is very simple.

If the advance tax paid is in underestimated instalments or if it s not paid at all, Section 234C gets attracted.

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Interest is calculated on the difference between the instalment paid and instalment payable. This is how
interest is calculated:

1% p.m. for a period of 3 months for every deferment.

But, for last instalment on 15
th
March, interest would be 1% for 1 month only.

Example:

Mr. A gives the following details:
Tax on total income = Rs. 500000
TDS = Rs.50000

Payment of advance tax:

15 Sept 2011 Rs.75000
12 Dec 2011 Rs.125000
15 Mar 2012 Rs. 200000
Total Rs. 400000

Solution:

Tax = Rs. 500000
TDS = Rs.50000
Assessed tax Rs.450000

Interest is computed as under:

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DUE
DATE
AMOUNT PAYABLE
AMOUNT
PAID
DIFFERENCE INTEREST CHARGED
14
Sept
30% of 4,50,000 = 135000 75000 60000 60,000*1%*3months = 1800
12
Dec
60% of 4,50,000 = 270000 200000 70,000 70,000*1%*3months = 2100
15 Mar

100% of 4,50,000 = 450000 400000 50000 50000*1%*1month = 500
TOTAL INTEREST U/S 234C Rs. 4400

I hope you found the article informative and had a good time reading it. Please do post your comments.

Regards
Tony John
Source : -
CAclubindia News : Interest u/s 234A, 234B and 234C http://www.caclubindia.com/articles/print_this_page.asp?article_id=15276
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